Microsoft gave investors a look at the company's business prospects on Tuesday at the Oppenheimer Annual Communications, Technology & Internet Conference in Boston.
In a 30-minute interview with Bill Koefoed, general manager of investor relations for Microsoft, questions were fielded concerning profitability, expense management, cultural shifts in the market, competition and strategies going forward.
Koefoed noted that about 80 percent of Microsoft's "client-side" revenue comes from OEMs. Consequently, Microsoft's year-over-year performance on the Windows side was no better or worse than the macroeconomic performance of PC sales.
"The last quarter in the PC business was mainly driven by macro factors, with a little bit of inventory build up," said Koefoed. "We think the overall macro PC industry was down somewhere between six and eight percent."
He said that about 11 percent of industry PC sales were derived from netbooks, which have lower selling prices than traditional PCs. That "netbook effect" has been a factor in Microsoft's business for the past nine months, according to Koefoed. In addition, he said that business PC sales, the core of Microsoft client-side revenues, have been suffering substantially more than consumer PCs.
Business PC software has the highest selling price of Microsoft offerings, he noted, with professional editions of applications such as Office leading the way.
Ironically, Intel recently reported improved chip sales, noting that there has been market strength shown in China. Unfortunately, Koefoed said that it is well known that Microsoft does not get paid for much of the software going to China.
"If we did, it would actually be good for our business," he said.
Going forward, Koefoed explained that Windows 7, due to be released in October, will have an edition for netbooks plus a Home Premium edition to address consumer sales. In addition, there will be a Professional edition for business and an Enterprise edition.
Asked how Office 2010 will compete with the host of new productivity suites being offered, Koefoed said that the Office strategy will continue to focus on collaboration that enables productivity for "communications workers." Specifically, he said chief information officers want a platform that can break down the barriers of sharing information across applications and integrate with communications server, instant messaging, voice-over-Internet Protocol and other emerging communications capabilities.
Koefoed downplayed Google as a competitor in the productivity-suite space for enterprise customers.
"[Google] gets a lot of press on the subject, but in the enterprise, we don't see them as much as the other two guys [IBM and Cisco]."
He did acknowledge Google as a formidable competitor in the search space.
"In my strategy classes, we would say going head to head with Goliath, per say, would be a difficult strategy," said Koefoed. "What you can look for [from Bing] is a search that will be innovative around the edges, and one that creates new user experiences."
He noted the deal with Yahoo was instrumental to that strategy because it will drive more users to Bing.
"Advertisers have actually been rooting for us because they want competition," said Koefoed, who called the Yahoo deal, which he expects to close the first part of next year, a "win-win for both companies."
Koefoed said that Microsoft will continue to lead in its cloud strategies with progress in scalable data centers, improvements to its Azure platform and application development.
"We will continue to offer all three capabilities (infrastructure, platform, applications), and not a lot of other companies can offer that," Koefoed said. "Plus we offer choice for the ecosystem of developers and partners."
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